AUD News: US, Canada and Mexico reach agreement while RBA is expected to hold rates

Over the past two weeks we have seen the AUD/USD remain in a holding pattern.

 

Trading has remained within a one cent range, despite the Federal Open Market Committee (FOMC) decision to increase US interest rates by 25 basis points to 2.25% last week, and a further expected three 0.25% US rate hikes in the next 12 months. 

 

 

These hikes have been largely priced in by the market, and the Fed’s decision to remove the word ‘accommodative’ from their accompanying statement means that interest rates can probably be described as nearing normal. 

 

In other words, there were no great surprises in the US market that have affected the Aussie dollar. Despite the markets reading quite heavily into the removal of the word ‘accommodative’, it makes sense as they are expected to keep increasing interest rates. The more they increase rates, the less accommodative they are to US citizens. Hey, can’t blame them for being honest – right?

 

With that out of the way, the market can focus on other factors; namely, ongoing trade issues between the US and its trading partners. 

 

Canada, Mexico and the US reached a trade agreement which will support the CAD. 

 

This leaves the ongoing China v USA tariff story as the other major potential issue to be resolved. Though, the fact that Trump and his Canadian and Mexican counterparts were able to reach an agreement has lifted some of the pessimism around other agreements that are at various stages of negotiation. 

 

The best bit? All of these deals are positive for the AUD.

 

Back on home soil, the RBA will leave rates on hold at 1.50%. It is likely that this will be the case for an extended period of time.  The market is currently speculating whether the next move will be a hike or a cut, however there is no clear motion for either option. 

 

The AUD itself has been relatively steady against most of the major currencies in the last month or so, with the only exception being the AUD/JPY where the AUD has risen over 4% in the last three weeks. For Aussie travellers this means more yen in your back pocket, and more sushi on your plate in Tokyo. 

 

Finally, the continued strength of the commodities index is positive for the AUD/USD. However, data coming out of China is less encouraging, as the Chinese manufacturing index is starting to look a bit shaky which may prove to be negative for the AUD. 

 

If you are travelling soon and are worried about fluctuating exchange rates affecting your spending money, rest assured as you can purchase your currency and add Rate Guard to your transaction in store. That way, if the exchange rate improves within 14 days of purchase Travel Money Oz will refund you the difference.